NEW YORK: The euro hit a two-month peak against the US dollar in choppy trading on Thursday after the European Central Bank unveiled a new and potentially unlimited bond-buying program to stem the euro zone debt crisis.
Investors have been anticipating the plan for weeks, and the details European Central Bank President Mario Draghi announced at a news conference were largely in line with expectations.
Draghi gave few new details on the program, however, initially disappointing investors and causing the euro to fall sharply against the dollar. The euro later recovered as market participants saw Draghi as delivering on his July pledge to do whatever it takes to preserve the euro currency.
The plan is aimed at the secondary market to address bond market distortions and what Draghi said are “unfounded” fears of investors about the survival of the euro.
“The ECB announcement on bond buying has helped out the euro and risk assets more broadly,” said Greg Moore, currency strategist at TD Securities in Toronto.
In early afternoon trading, the euro rose 0.3 per cent to $1.2643, off the session low at $1.2559.
“For the most part, (Draghi’s comments) were positive for the euro, but still short on some details,” Omer Esiner, chief market analyst at Commonwealth Foreign Exchange in Washington.
The euro remained within its recent 10-day range against the dollar. Analysts at ActionForex.com said with minor euro support of $1.2465 intact, the rebound from the July lows of $1.2040 is expected to continue.
Above $1.2637, investors will target $1.2764 — the 50 per cent retracement of the move from the February high of $1.3486 to the July low of $1.2042.
The single currency had climbed to $1.2650 on Thursday, its highest since early July, after the ECB kept interest rates unchanged at 0.75 per cent. Some investors had been bracing for a rate cut to support flagging growth in the euro zone.
The ECB will also offer banks easier access to central bank loans by loosening collateral standards for debt from countries getting bailouts or bond market support, Draghi said.
Investors discounted a new forecast from the European Central Bank staff that the euro zone economy will probably contract more than previously expected this year. The ECB staff also raised the bank’s outlook for 2012-13 inflation.
The euro could struggle to climb higher, analysts said, with a German Constitutional Court ruling on the euro zone bailout fund scheduled for Sept. 12, which will keep many investors wary of initiating large positions.
German Economy Minister Philipp Roesler said on Thursday the European Central Bank’s purchases of sovereign debt were not a permanent solution to the region’s problems and stressed that structural reforms needed to have priority.
SWISS FRANC FALLS
The euro earlier touched a 3-1/2-month high against the Swiss franc on the first anniversary of the Swiss National Bank’s decision to impose a floor on that pair and curb the franc’s gains. It was last up 0.1 per cent at 1.2058 francs.
The franc has fallen sharply against the euro in the past two sessions on market talk that the SNB has been buying euros to protect the 1.20-franc floor. The SNB has declined to comment on the speculation.
Against the yen, the dollar was last up 0.7 per cent at 78.90 yen, with a session peak of 79.02 yen, after solid US private payrolls and services data.
US private employers added 201,000 jobs in August, payrolls processor ADP reported, easily beating economists’ expectations.
The US government will release its closely watched monthly jobs report for August on Friday.
The dollar broke above 79 yen to a two-week high after separate data showed the pace of growth in the massive US services sector rose in August on a rebound in employment and exports.
Sterling was last trading up 0.2 per cent at $1.5939, near a 3-1/2-month high, after the Bank of England kept interest rates steady and its quantitative easing program unchanged, as expected.